It was not long ago that cryptocurrency felt like a niche concern for tech enthusiasts and speculators, but that has changed.
New research shows from digital payment company DECTA, shows that one in five of the UK’s leading SMEs is now receiving or considering requests for crypto payments from customers.
For business owners, the question is no longer whether crypto is relevant, but rather whether you are willing and prepared for what accepting it actually involves.
HMRC is clear that cryptoassets are not currency and should instead be classed as intangible assets.
This means the moment a customer pays you in Bitcoin or any other cryptoasset, you have acquired an asset with a recorded cost, not simply received money. That cost is the sterling equivalent of the payment on the day it lands.
From that moment, your business is holding something whose value can move significantly in either direction and every subsequent transaction involving that asset has potential tax consequences.
Selling your crypto, exchanging it for another digital asset or using it to pay a supplier are all disposal events for Corporation Tax purposes.
If the sterling value has risen since you received the payment, you have a chargeable gain and if it has dropped, you have a capital loss.
Given how sharply cryptoasset prices can move, the gap between what you received and what you eventually dispose of can be sizeable.
Gains are subject to Corporation Tax at the applicable rate, but losses are not wasted, as their value can be set against gains in the same period or carried forward into future years.
Of course, HMRC expects you to document the date of every transaction, the sterling value on receipt and the sterling value at disposal.
Where you hold multiple batches of the same cryptoasset, the existing pooling rules govern how the cost base is calculated.
Some businesses convert cryptocurrency to sterling immediately, but others choose to hold it, either for convenience or in the expectation that the value will rise.
The latter approach is worth thinking through carefully as holding cryptoassets on your balance sheet means carrying an asset that can swing dramatically in value between accounting periods, with corresponding uncertainty around your tax position.
A straightforward policy on conversion timing can remove a lot of that complexity before it becomes a problem.
The recordkeeping requirements are more demanding than most business owners anticipate and mistakes are costly to unpick retrospectively.
If customers are starting to ask about crypto and you are weighing up whether to accommodate them, take advice first.
Getting the right systems and policies in place from day one makes everything that follows considerably more straightforward.
For further guidance on the tax treatment of crypto payments, get in touch with our team.
